February 11, 2013

Now time to assess finances, check insurance coverage

With tax season approaching, a Kansas State University financial management specialist suggests that reviewing records for taxes also is a good time to check your credit report, assess personal finances and goals, and after a year with historic weather-related losses, review insurance coverage.

According to Elizabeth Kiss, K-State Research and Extension family resource management specialist, a periodic assessment is a key to building financial security and protecting your assets.

“If we are to improve our situation, we have to know where we are,” said Kiss, who recommended four areas for review:

A credit report details the types and amount of credit available; the length of time credit has been extended; use of credit; payment history and public financial records, such as filing for bankruptcy, foreclosure or a tax lien.

A credit report is different than a credit score, which, in essence, grades a consumer’s use of credit, the family resource management specialist said.

Potential lenders may use one or both to evaluate risks in extending credit, such as a car loan or home mortgage. Often, a consumer with a reliable credit history and higher credit score can use the information to obtain a lower interest rate when borrowing.

Consumers are advised to check their report annually, or more often, if an error in a financial transaction has occurred or identity theft is suspected.

Checking your credit report also is recommended after major life changes, such as the death of a spouse, divorce, separation, loss of a job or a move.

Consumers have the option of requesting a report from each of the companies offering the reports at the same time, said Kiss, who noted that company procedures for collecting information vary, so reports also will vary.

Such reports are available online at www.AnnualCreditReport.com, by phone (1-877-322-8228), or by filling out an Annual Credit Report Request form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Consumers also are eligible for a free credit report (that may be in addition to reports already requested) if information in a report has been cited as a reason for being denied employment, insurance or a loan, said Kiss, who noted that a request for a report under such circumstances must be made within 60 days of the denial.

Credit reports are free, but there usually is a charge for a credit score, said Kiss, who advised individuals who are considering applying for a loan to check their credit score before applying.

If a credit score is low and the need to borrow not immediate, consumers may want to work to improve their credit score (by paying bills promptly, making more than minimum payments, etc.), she said.

People typically shop for a bank when setting up financial accounts, but can become complacent about long-standing accounts, Kiss said.

Reviewing accounts, current fees and services, such as changes to lobby or drive-thru hours, charges for use of ATM’s, and savings offered through online banking is recommended.

With interest rates at all-time lows, many financial service providers have adjusted services and increased fees, said Kiss, who advised customers considering a change to also assess potential costs of changing financial services providers.

Consumers considering a change also are advised to be sure to allow time for direct deposits (such as a pay or Social Security check) and automatic withdrawals, such as water or other utility bills, to be covered.

3) Review insurance policies, coverage, and beneficiaries.

Reviewing insurance policy coverage, limits of coverage, and items that are not covered is recommended.

It’s best for a customer to be fully informed, and to have time to ask his or her insurance agent to explain the limits to make sure coverage is adequate before having to file a claim, Kiss said.

“The purpose of an insurance policy is to share the risk,” said Kiss, who explained that insurance needs can change with the ages and stages of life. For example, parents of young children will want to invest in a life insurance policy to protect the family; once the family is grown, needs may change.

A non-smoker may be offered discounts on health insurance; a driver with a safe-driving record may earn a discount on auto insurance, and policy holders with more than one policy with the same company also may be entitled to additional discounts.

Checking to make sure beneficiaries’ names and contact information is up to date is recommended.

Consumers also can lower premiums if they are willing to increase the deductible. Doing so takes a greater personal responsibility for the risk, and Kiss advises weighing the differences in the premium by asking for quotes with a $250, $500, or $1,000 deductible.

“Shopping for insurance is advisable, even though policies vary and we’re not always comparing apples to apples,” said Kiss, who noted the bottom line is: “How much risk are you willing to accept?”

4) Make saving for an emergency fund a priority.

Establishing an emergency fund is a must, said Kiss, who explained that having as little as $500 to $1,000 available in an emergency can be enough to eliminate the need to run up a balance on a credit card with a high interest rate or need to negotiate a loan without time to shop for the best interest rate.

Kiss offered recent personal experiences as an examples: In one year, her washing machine stopped working and had to be replaced; a storm downed a tree limb that landed on – and broke – the glass in her car’s sunroof, and her cat needed surgery.

In noting that financial professionals typically recommend a minimum savings goal of three to six months’ living expenses as an emergency fund, Kiss suggested breaking down a savings goal into manageable increments.

For example, if living expenses are $1,800 a month, and a three-month emergency fund goal $5,400, a 10-year savings plan will require a savings goal of $540 a year, which breaks down to $45 a month, or $10.50 a week -- the equivalent of two lunches.

Kiss advises setting up a separate account for an emergency fund, and setting up a direct deposit to the account, if possible.

“Saving something regularly is better than nothing,” Kiss said.

More information on managing family finances and resources successfully is available at K-State Research and Extension offices throughout the state and online: http://www.ksre.ksu.edu.